UMUC FINC 330 Homework 3 Solutions
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1. What is the present value of a $716 perpetuity discounted back to the present at 10.88 percent.
2. You plan to apply for a loan from Bank of America. The nominal annual interest rate for this loan is 7.84 percent, compounded daily (with a 365-day year). What is the effective annual rate, or EAR (annual percentage yield), of this loan?
3. You are considering an investment that has a nominal annual interest rate of 14.19 percent, compounded semiannually. Therefore, the effective annual rate, or EAR (annual percentage yield) is _____.
4. Assume that the inflation rate during the last year was 1.54 percent. US government T-bills had the nominal rates of return of 5.79 percent. What is the real rate of return for a T-bill?
5. Large-cap stocks had the nominal rates of return of 12.05 percent. The rate of inflation during the last year was 1.79 percent. What is the real rate of return for large-cap stocks?
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